I would pin this issue down to the rights of the account running the automated build task rather than SmartAssembly. The way SA works with Silverlight is to extract the .XAP built by Visual Studio to the %TMP% folder, process the DLL(s) inside and re-zip the files back into a new .XAP file.

Looks to me as if the issue is that smartassembly.com can't find the extracted files in the temporary folder where they're supposed to be.

You can try running the build task as a different user (from the looks of it, you are using the SYSTEM account) or grant modify rights to the files in c:\\windows\\temp to whatever account runs the build.

Highly unlikely, but this could also be caused by some AV/security program so you may want to check that out, too.